Q. We recently had to vote to remove our co-op board president from his position, because he was taking small amounts of funds on a regular basis. He said it was all ‘petty cash reimbursements,’ and claims that nobody but the treasurer is entitled to know what the president uses petty cash for—but he never told the board or treasurer about many of these ‘reimbursements.’ Our new treasurer just happened to notice them as he was going through papers.

The problem is that this man is still on the board, but behaving very erratically, running around to shareholders and telling them that he was thrown off without reason. We have plenty of documentation to prove this is not true. He is getting the residents very agitated, trying to convince them—falsely—that the new board members are going to destroy the co-op. He is also harassing our management company, calling them as often as eight times a day, complaining that he was overthrown without cause. 

Our shareholders are looking for explanations of what’s going on, and our questions are: Is it true that only the president and treasurer can access records of petty cash reimbursements, or are we allowed to show non-board shareholders copies of the records so that they can know the truth? How can we remove him from the board? We don’t want to get sued, but we want the residents to know what’s been going on before our annual elections later this fall.

                    —Concerned Board Member

A. According to Qing Angie Lin, an associate with Koss & Schonfeld LLP in New York City, “Generally, there are two different standards to consider when trying to remove an officer–such as the president–from the board of directors in a cooperative: (1) removal of the individual person as an officer; and (2) removal of the individual as a member of the board of directors entirely. If a cooperative’s certificate of incorporation or its bylaws are silent on these issues, then the default rules pursuant to NY Business Corporation Law (BCL) are as follows: (1) an officer may be removed by a vote of the board of directors with or without cause; and (2) a director may be removed by a vote of the shareholders for cause. Language in most cooperative bylaws tracks the language of the BCL, but typically provides that shareholders can remove directors with or without cause. 

“Therefore, in order to remove the president as an officer and a member of the board of directors, it would generally require a majority vote of the board of directors to remove him as president and a majority vote of the shareholders to remove him from the board itself. Before holding a special meeting of the shareholders to remove the president, the board might consider requesting that the president voluntarily resign as an officer and director.

“Regarding the question of who can access financial records, New York case law provides that corporate directors have an absolute and unqualified right to inspect corporate books and records.

“We recommend that the board members first try to resolve the matter internally, and carefully review the petty cash records. If the records reveal that the president was using the money for personal gain, then the board can potentially file a lawsuit against the president for conversion and breach of fiduciary duty—however, we recommend that the board first try to convince the president to make restitution, resign, and not seek re-election. 

“If the president insists on discussing this matter with other shareholders, the other directors can present any factually accurate information and documents to refute the president’s statements, which will bar any liability for libel or slander claims.”